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The Green Candle of Hope

 -- Published: Monday, 5 October 2015 | Print  | Disqus 

By Craig Hemke

Last month, we wrote about the recent "Death Candle" for the S&P 500. Equity investors everywhere should be sure to note with extreme caution that history is once again repeating itself.

Before we begin, please take a few moments to review this post from last month:

Again, the previous two bull markets in equities ended with massive down months, shown as huge, red "death candles" on the monthly charts:

December 2000 saw a range of 9.72% and a final loss of 4.97%. Death Candle #1.

January 2008 saw a range of 13.72% and a final loss of 6.38%. Death Candle #2

And now August 2015 saw a range of 11.64% and a final loss of 6.67%. Death Candle #3.

But in the previous two occurrences, the painting of the death candles DID NOT send the stock market immediately lower. The bear markets of 2001 and 2008 both began with "dead cat" bounces, instead. A "Green Candle of Hope", if you will...

January 2001 saw an upside move of 4.77% and a final gain of 3.28%.

April 2008 saw an upside move of 5.88% and a final gain of 4.45%.

If October or November of 2015 follow the pattern, we'll see an upside range of about 5.5% and a final gain of approximately 4%. For October, with a starting point of 1919 on the S&P, this implies an intra-month move to between 2020 and 2040 with a close back down near 2000. Another Green Candle of Hope.

Additionally, the bounces of both January 2001 and April 2008 failed at resistance near what had been support. An October or November bounce in the S&P to 2020-2040 would again follow this exact same pattern. See below:

Let's wait to see if October and/or November play out as expected before making any further predictions and forecasts. However, as a preview, here's a reprint of the chart that accompanied the original post last month. Note that the previous bear markets each saw drops in the S&P of greater than 50%. If history does, in fact, repeat itself in late 2015 and early 2016, we'll be looking at a drop in the S&P 500 back toward 1,100 or even 1,000. Do you see now why we caution equity investors everywhere to proceed with extreme caution?

Prepare accordingly.



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